Sound Tax Principles for tax reform and tax replacement

Here are 8 principles of taxation that should be followed by anyone who is hoping to create a sound system of taxation. The following 8 principles are largely ignored by all systems of taxation in existence and also by most tax reform proposals. Only AutomaticTax follows all 8 tax principles exactly.

The first 4 principles of taxation are by Adam Smith (1776 Wealth of Nations). The additional 4 principles of taxation are by Alf Temme (1975 UniversalDemandLaw ):

1. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.

2. The tax which each individual is bound to pay ought to be certain, and not arbitrary.

3. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it.

4. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state.

5. A tax should not be used as a tool for social engineering.

6. A tax should be as broad based as possible, resulting in a low percentage rate that offers little incentive for tax evasion and tax avoidance.

7. A tax must be formulated in simple language easily understood by all who are subject to it.

8. To keep it as simple and clear as possible, a tax must have no exemptions. Rather than exemptions, government subsidies and grants can be substituted for exemptions.

The 8 principles in more detail:

1. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.
Taxation Principle #1 deals with dignity and justice and fairness in taxation. There is dignity in the paying of tax by “the poor”. In most current tax theory and legislation it is erroneously held that poor people belong to an underclass that needs special tax treatment and cannot function as respectable full function citizens that proudly will contribute to and participate in the financial support for the running of their own governments. That sort of paternalistic thinking places "the poor" into a class by itself, rather than an integral part of society with the same rights and duties of everyone else. That sort of undoubtedly well meaning but divisive paternalistic thinking gave rise in the past to the notion that only those who pay taxes should have the right to vote.
The warped justification leading to progressive taxation shows a total lack of understanding of taxation to believe that excluding “the poor” from this or the other tax makes them exempt from taxation. It is wrongly thought that "the poor" need financial support and that "the rich" should foot the bill for that financial support. It is a complete hoax and fallacy to propose to exclude "the poor" from taxation and that taxes should be structured according to the ability to pay. Under all systems of taxations “the poor” pay taxes embedded in every product or service they consume. The embedded taxes they pay are in direct proportion to their spending. The exclusion of “the poor” from certain taxes is arbitrary and the establishment of “tax brackets” is not only arbitrary but also out of proportion "to the revenue which they respectively enjoy under the protection of the state". The concepts of current tax theory are in gross violation of Adam Smith #1 and AutomaticTax is in total agreement with Adam Smith #1.

2. The tax which each individual is bound to pay ought to be certain, and not arbitrary.
Taxation Principle #1 demands a very simple tax rate that applies to any and all economic transactions without exception, so that everybody knows what the tax rate is and that there is certainty of taxation and , very importantly, that there will be no arbitrary exceptions to the rule (no matter how persuasively any proposals for exceptions may be presented by special interests and by well meaning political leanings.)

3. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it.
This means that a tax should be levied with the least amount of inconvenience to the tax payer. Need I say more, there is zero inconvenience for the tax payer with the way in which tax is paid under AutomaticTax . Many other tax reform proposals seek to reduce the inconvenience somewhat or often even a great deal, but none reduce it to ZERO inconvenience as does AutomaticTax which is "levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it". In fact, the taxpayer has to do absolutely nothing because the tax deduction is completely automatic without human interface.

4. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state.
This means that the total direct and indirect cost of paying and collecting the tax should be as small as possible. The direct and indirect cost and burden on the total economy and society as a whole cannot be expressed in money alone, but with the insane USA income tax code could be as much as $900 billion or more. The direct and indirect cost of collection for AutomaticTax is certainly less than $50 billion. As such AutomaticTax keeps "out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state".

5. A tax should not be used as a tool for social engineering.
The AutomaticTax can be easily protected from manipulative use for social engineering by prohibiting any exemptions from the tax for such social engineering purposes.

6. A tax should be as broad based as possible, resulting in a low percentage rate that offers little incentive for tax evasion and tax avoidance.
AutomaticTax is enormously broad based in that it is a tax on all forms of fund transfers except the transfer of funds involved with financial instrument trades such as stocks, bonds and other financial "products". Only the profit portions of such trades are subject to the tax. Also transfer of funds between accounts owned by the same party are excluded..

7. A tax must be formulated in simple language easily understood by all who are subject to it.
The complete AutomaticTax can be stated in easy to understand language on a single page of writing. A total of fewer than 5 pages of writing are needed to state the full rules of the AutomaticTax law.

8. A tax must have no exemptions. Rather than exemptions, subsidies and grants can be given instead of exemptions. and tax refunds may be granted for transactions deemed eligible for such refunds.
AutomaticTax follows Adam Smith’s and Alf Temme's principles of taxation as closely as possible to create a very simple and effective tax replacement for all systems of taxation in all countries around the Globe .

AutomaticTax has provisions for tax refunds made by a special State tax office empowered for that specific purpose and the legislatures may bestow subsidies and grants as they may deem appropriate but they will be strongly reminded not to tamper with the tax collection side of AutomaticTax, lest they want to run the risk (actually the certainty) that they will create once more an incomprehensible mess like the current 65,000 page USA tax code. Shame on us, the people, to allow our legislators to create such a messthat to happen. We have to be vigilant at all times now and in the future.